How To Teach Your Teenagers to Build Credit

Understanding how credit works is one of the most important things that you can teach your teenager.

While I don’t believe it’s necessary for them to have an excessive amount of credit, it’s good to get them thinking about what the term means in addition to getting their credit history off to a good start.

There are several ways to get a teenager involved in their finances and to encourage them to have good credit now and many, many years into the future. Here are a few tactics that you can use: get a pre-paid card, put a bill in their name, and let them fail from time to time.

1. Get a Pre-Paid Card

When I was a teenager and throughout college, I had a prepaid card that my mom put a set amount on every month. I think it was around $100/month in high school and $200/month in college. I used this money to buy little extras, and I often saved it up if I wanted to go on a weekend trip or something like that. If I wanted a t-shirt or another gift for myself, I wouldn’t ask my mom for it. That’s what the card was for. I learned pretty quickly that I couldn’t have everything I wanted. I had to choose. Looking back, it was a pretty sweet deal.

While my pre-paid card didn’t necessarily build my credit score, it definitely mimicked it. I learned not to go overboard with my purchases. I learned that if I spent too much, the card would “max out,” and I wouldn’t be able to buy anything anymore. It prepared me well for checking my credit card balances and managing my money, and I think I’ll do the same for my own kids when they become teenagers (way, way down the road!)

2. Put A Bill in Their Name

Whether it’s a car note, a cell phone bill, or a credit card they have access to, you can put a bill in their name that helps them to build credit. Of course, instead of just adding them to your card, make sure you tell them what you are doing. Explain the process to them. Show them how to check their credit score. Explain what it means to not pay a bill and what it can do their number. These are all really important conversations and lessons to impart that so that when they are adults, they can never say that their parents didn’t teach them about finance!

3. Let Them Fail

It’s so easy to swoop in and try to “save” teenagers if they make a financial mistake. You might want to remind them about a late bill or explain late fees. However, if they make a small mistake or two, it’s okay. They have to know that when they don’t pay something, it knocks down their credit score. They have to know that a low credit score might affect them in the future when they want to buy a car or a house, etc. I’m not saying let them crash and burn or be afraid to ask you for help. I’m just simply pointing out that sometimes mistakes can be the best teachers when it comes to finance. I know they were for me.

What are some other ways that you can teach your teenagers to build credit in a responsible way?

About Catherine Alford

Catherine Alford is a personal finance writer who received a B.A. from The College of William and Mary and an M.A. from Virginia Tech. When she is not writing for other websites on all topics frugal and fabulous, she enjoys sharing her adventures on her blog, www.BudgetBlonde.com. Follow her on Twitter @BudgetBlonde or like Budget Blonde on Facebook.